Let D(p) be the demand for a good at price p. The revenue function is the amount of money gained by the producer when fulfills the demand, namely R(p) = pD(p). 1. Let E(p) be the elasticity of D(p). Compute R'(p) in terms of D(p) and E(p) only. 2. Recall that, in general, the elasticity of the demand is negative, that is, E(p) < 0. We assume that this is the case from now on. Now, If the demand is elastic, what is the sign of R'(p)? What happens to the revenue if we slightly increase the price? What if the demand is inelastic? 3. According to the previous question, if the revenue is maximal at p, can the demand be elastic at p? Inelastic? What can you conclude?

Let D(p) be the demand for a good at price p. The revenue function is the amount of money gained by the producer when fulfills the demand, namely R(p) = pD(p). 1. Let E(p) be the elasticity of D(p). Compute R'(p) in terms of D(p) and E(p) only. 2. Recall that, in general, the elasticity of the demand is negative, that is, E(p) < 0. We assume that this is the case from now on. Now, If the demand is elastic, what is the sign of R'(p)? What happens to the revenue if we slightly increase the price? What if the demand is inelastic? 3. According to the previous question, if the revenue is maximal at p, can the demand be elastic at p? Inelastic? What can you conclude?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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